Market Segmentation, Target Marketing, and Positioning

1
GRAHAM HOOLEY NIGEL F. PIERCY BRIGETTE
NICOULAUD
3
The changing market environment
2
Introduction

• How environment in which marketing takes place is
  changing
• Marketing environment can be divided into
• Competitive environment (including company, its
  immediate competitors and customers)
• Macro-environment (the wider social, political
  and economic setting in which organizations
  operates

3
Industry vs. markets

• Industries are collection of organizations with
  technology and products in common
• White good firm comprise and industry that make
  refrigerators, washing machines and so on
• Markets are customer linked by their similar
  needs
• Laundry products comprise a market products and
  services customer use to clean their clothes

4
A framework for macro-environmental analysis

• Nature of change in macro-environment
• Importance of understanding macro-environment is
  tow fold
• Market impact of change
• Nature of change facing organizations is itself
  changing
• PEST analysis (political, economic, social,
  cultural and technological)

5
Figure 3.1
PEST analysis of the macro-environment
6
The economic and political environment

• The European single market and its enlargement
• Single market of over 320 million consumers was
  created to allow free flow of products and
  services
• Internationalization and globalization
• Foundation of OPEC, valuable raw materials
• Changes in east/west relationship
• Dismantling of berlin wall, liberalization of
  economies, break-up of soviet union, regional
  trading blocks

7
Figure 3.2
The economic and political environment
8
Social and cultural environment

• Demographic change
• Demographic time bomb
• The grey market
• Over-60s age group make up 20 of population
• The youth market
• Multi-ethnic market western societies
• Changing living patterns and lifestyles
• Single person households, women employment

9
Figure 3.3
The social and cultural environmental
10
Social and cultural pressures

• Customers are becoming increasingly demanding
• They demand and expect reliable, and durable
  products with quick, efficient service
• Customers are less prepared to pay substantial
  premium
• Change in attitude to, concern for, the physical
  environment

11
The technological environment

• A shortening of commercialization times of new
  inventions
• Photography (took over 100 years)
• Telephone (56), Radio(35), TV (12)
• Transistor (only 3 years)
• Innovative marketing research companies
• The internet the global electronic
  communications network

12
Globalization of markets

• Increasingly becoming global market
• Impact of technology
• Gigantic, world-scale markets with economies of
  scale
• Problems for competitors that do not operate on a
  global scale

13
New strategies for changing macro-environments

• Learn fast and adapt quickly (Dickson, 1992)
• Combination of culture and climate to maximize
  learning (Slater and Narver, 1995)
• Being market oriented
• Multi mode marketing
• Pursuing intense relationship-building, less
  intense and arms length strategies

14
Marketing strategies

• Global positioning
• Think globalization and focus core competencies
• The master brand
• Brand identity that links all parts of the
  business e.g. Toyota, Honda
• The integrated enterprise and end-user focus
• Challenge of managing people, processes and
  infrastructure to deliver value to end user

15
Figure 3.4
The shift in strategy for delivering shareholder
value
Focus on core competencies
The new strategic imperative
Domestic focus
Global focus
Portfolio approaches
16
Marketing strategies (Contd)

• Built-in-class processes
• Challenge to meet world-class standards from
  wherever they come
• Mass customization
• Product or service tailored to the individual
  customer requirements
• Breakthrough technology
• New technology e.g. smart toilet in Japan

17
Cravens predicted following forms

• Markets shape business strategies
• Networks of interlinked product markets
• The move from functions to processes
• Increasingly focus on process of going to market
• Strategic alliances
• Collaboration and partnership
• The balanced scorecard
• Keeping scores involved

18
Five forces model of the industry competition
19
Figure 3.5
Five forces driving cmpetition
Threat of new entrants
Bargaining power of buyers
Bargaining power of suppliers
Rivalry among existing firms in the industry
Threat of substitutes
20
Rivalry among existing companies

• The rivalry is likely to be most intense where
• Competition in the industry are roughly evenly
  balanced in terms of size and share
• During periods of low market growth
• Where exit barriers are high
• Where product differentiation is low
• Where fixed costs are relatively high

21
The threat of market entry

• Potential for new entrants to emerge
• Conditions make market entry more likely
• Entry barriers can be low where
• Costs of entry are low
• Existing/new distribution channels are open to
  use
• Little competitive retaliation is anticipated
• Differentiation is low
• There are gaps in the market

22
The threat of substitutes

• Substitution can increase competitiveness of an
  industry for no of reasons
• By making existing technologies redundant
• By incremental product improvement

23
Bargaining power of suppliers

• Suppliers tend to have more bargaining power
  where holds
• Suppliers are more concentrated than buyers
• Costs of switching suppliers are higher
• Supplier's offerings are highly differentiated

24
Bargaining power of buyers

• Buyers tend to be more powerful in the supply
  chain where the following is true
• They are more concentrated than sellers
• They are readily available alternative sources of
  supply
• Buyer switching costs are low

25
Competitiveness drivers

• Where following industry characteristics are
  present, expect greater level of competition
• There is little differentiation between market
  offers
• Industry growth rates are low
• High fixed costs need to be recovered
• High supplier switching costs
• Low buyer switching costs
• Low entry barriers
• High exit barriers

26
The product life cycle
27
Figure 3.6
The product life cycle
Sales
Sales profit
Time
Profit
Loss
Introduction
Growth
Maturity
Decline
Pre-launch
Launch
28
Introduction stage

• Product is launched into the market and sales are
  slow to pick up
• Customer and distribution have to be found
• The first HD DVD player
• Motorola razr in the fashion phone market

29
Growth stage

• Rapid increase in sales
• Product starts to attract different types of
  customers
• Repeat purchases may start
• Microsoft Zunes as the IPod killer

30
Maturity stage

• Growth slows down significantly
• Lasts longer than the previous one, the most
  challenging one
• Severe competition, market fragmentation and
  declining profits
• Weaker competitors will exit

31
Decline stage

• Rapid decline of the sales of the product
• Better solutions
• New technology such as the flash pen replacing
  flopping and zip-disk
• A change in consumer taste or an increase in
  competition, domestic or international

32
Strategic groups

• Firms within industry following similar
  strategies for similar customer groups
• Coca Cola and Pepsi
• Barriers to mobility within industry
• Vertical integration of companies
• Geographical boundaries
• Differences in technology
• Threat of substitute or new entrants

33
Figure 3.7
Map of strategic groups in the US automobile
market
The Faded Champions VW Audi, Rover Group
Broad line
The Big Three GM, Ford, Chrysler
The Samurai Toyota, Nissan, Honda, Mazda
Luxury Cars Mercedes, BMW, Volvo, Saab, Jaguar
Degree of specialization
Specialists Rolls-Royce, Ferrari, Aston
Martin Lamborghini, Lotus, Morgan, McLaren
Narrow line
Low
High
Local content
34
Industry evolution and forecasting

• Porter (1980) discussed evolution of industry
  through three main stages emergence,
  transformation to maturity and decline

Industry Evolution Product
Product Lifecycle Brand
35
Figure 3.8
Industry evolution
Stages Issues Strategies
Emergence Technological uncertainty Commercial uncertainty Customer uncertainty Channel uncertainty Locate innovators, and early adopters Establish standard Reduce switching cost risk Encourage trial
Transition to maturity Slow growth, failing products Excess capacity, intense competition Increased customer power Extended product line Marketing mix marketing Customer retention and segmentation Efficiency focus Coordination
Decline Substitution by newer technologies Demographic change Focus or divest
36
Emerging stage

• Uncertainty
• Big losses can be associated
• Out of three competing video disks and video
  cassette recording technology in mid-1980s only
  one, VHS, has survived
• Philip with laser disk and V2000 VCRs and Sony
  with Betamax were two of losers

37
Transition to maturity

• Uncertainty declines
• Competition intensifies
• Rapid growth, high margins, little competition
  and apparent size of industry within late stage
  of emergence attract many competition

38
Decline

• Emergence of substitute or demographic shift
• Two main strategies are usually appropriate
• Divest or focus on the efficient supply of a
  robust segment

39
Environmental stability

• Limitation of porters industry model
• Technological and marketing uncertainty to
  emerging stage of the industry
• Environmental turbulence is fundamental to
  understanding industries (Ansoff 1984)
• Marketing and innovation turbulence
• Try to match its capability to appropriate
  environmental turbulence

40
Figure 3.9
Environmental turbulance
Repetitive
Surpriseful
Developing
Discontinuous
Marketing Turbulence
Innovation Turbulence
Changing
Changing
Discontinuous
Developing
Surpriseful
Repetitive
Grocers (Tesco, Sainsbury etc.
Convenience stores (7/11, SPAR etc.)
Environmental Turbulence Strategic
Thrust Capability
Repetitive Devaloping Changing Discontinous Surpriseful
Stable Reactive Anticipatory Exploring Creative
Custodial Adaptive Synergistic Global Creative
41
Space analysis

• SPACE (strategic position action evaluation)
• Relates industry strength to the competitive
  advantage and financial strength of company
• Financial strength, high liquidity or access to
  resources withstand environmental volatility
• Industry strength, attractiveness in terms of
  growth potential, profitability and ability to
  use its resources efficiently

42
Space analysis (Contd)

• Competitive posture competitive advantage in an
  attractive industry
• Aggressive quadrant significant advantages,
  likely to face threats of new competition
• Conservative posture mature markets, lack of
  needs for investment, financial surplus
• Defensive posture vulnerable, little residual
  strength to combat competition

43
Figure 3.10
Space analysis map
Financial Strength
Conservative
Aggressive
Competitive advantage
Industry strength
Strategic postures
Defensive
Competitive
Environmental stability
44
The advantage matrix

• Boston consulting group (1979) developed it
• Classify competitive environment within industry
• Framework identifies two dimensions
• Approaches for achieving advantage in market
• Potential size of advantage
• Quadrants of advantage matrix show how
  relationship between relative size and return on
  asset can differ

45
Figure 3.11
The Advantage Matrix
Fragmented
Specialized
ROA
ROA
Many
RS
RS
Number of ways to achieve advantage
Stalemate
Volume
ROA
Few
ROA
RS
RS
Small
Large
Potential size advantage
ROA Return on asset RS Relative size